Scottish independence: Currency union blow for SNP

Picture: Phil Wilkinson

DAVID MADDOX

AN international credit rating agency today warned that the SNP’s hopes of keeping an independent Scotland in a currency union with the rest of the UK would create instability.

Rating agency Fitch also warned that Scotland’s exit from a monetary union would bring “high volatility and market turbulence”.

In a report highlighting continued concerns about the eurozone, Fitch analysts said: “The monetary arrangement following Scottish independence could become a source of uncertainty even if Scotland remained in the GBP zone.”

It went on: “As the intensification of the eurozone crisis showed in 2012, a monetary union without fiscal and banking union is unstable and the prospect of an exit from a monetary union could lead to high volatility and market turbulence, potentially detrimental to all members.”

The Scottish Government said that Fitch was “wrong” in its assessment.

Fitch head David Riley also told the Treasury Select Committee last year: “I am not aware of a situation where Fitch has assigned a AAA rating on a new sovereign nation. History and track record can be important in terms of building credibility.”

A low credit rating means that the Scottish Government, businesses and individuals would have to borrow at a higher rate.

Former Chancellor of the Exchequer and Chairman of Better Together Alistair Darling said: “This report is another blow to Salmond’s credibility on the central issue of what currency Scotland would use after leaving the UK.

“It is increasingly obvious that the idea of a currency union is dead in the water. To be successful, a currency union requires fiscal and political union – the very thing the SNP are campaigning to dismantle in the United Kingdom.”

He added: “This will only increase the pressure on Alex Salmond to tell us what currency we would use if the rest of the UK refuse a currency union. What is the plan B?”

A Treasury spokesperson said: “The UK Government has repeatedly said a that currency union is highly unlikely to be agreed as it is highly unlikely to be in the interests of either Scotland or the UK. Fitch make this same point - yet another example of why the Scottish Government needs a plan B.”

However, a Scottish Government source said: “Comparisons with the eurozone are wrong because the Scottish and rest of the UK economies are well-matched with almost identical levels of productivity, unlike the disparate economies of the euro area.

“A shared currency within a common Sterling area has been backed by the expert work of the Fiscal Commission, including its two Nobel laureates, by many leading business figures and academics, and by currency experts at Deutsche Bank and Citigroup. Sharing the pound will also be in the overwhelming interests of the rest of the UK, and has been described by No campaign leader Alistair Darling as ‘logical’ and ‘desirable’.”

The currency issue has been a source of debate in the Yes campaign with Scottish Green co-leader Patrick Harvie suggesting that Scotland should have its own currency.

The other alternative is that an independent Scotland would continue to use the pound without being in a currency union without control over its interest rates.

The latest report follows Chancellor George Osborne saying that a sterling zone is “unlikely” and shadow Labour Chancellor Ed Balls suggesting a Labour government would not agree to such a zone.

A Treasury analysis paper highlighted how a currency zone with a large and small state would be difficult to work.

Despite this the SNP puts currency union with the rest of the UK at the heart of its independence White Paper published last month and insisted that it was in the interests of both an independent Scotland and the rest of the UK.

The report is also the latest indication that a newly independent Scotland would not receive a high credit rating following reports that global agencies Fitch, Standard and Poor and Moody’s had all issued internal papers suggesting Scotland could be “several notches below” AAA.